Stocks and mutual funds are good investments for students looking for short-term returns. Index funds, EFTs, and CDs are better for a longer-term plan.
Best Investments for College Students
Nowadays, it has become increasingly expensive to get a college degree, and most students rely on loans to pay their way through college. This leaves them with a mountain of debt that they need to pay back over the next 15 to 20 years.
However, the sharpest among them have realized that investing can be a great way to start making money that they can eventually use to pay off their debts.
Whether or not you’re in debt, it is always a good idea to start investing early, and college can be the perfect time to start. We have compiled a list of the best investments for college students and the dos and don’ts of early investing.
Read on to find out the best way for college students to invest.
Why Should you Start Investing While in College?
You may be hesitating to invest while still in college as you barely have enough income to cover your needs. However, you don’t need a lot of money to start investing. A modest $5-$10 a month can get you started and, most importantly, get you into the mindset of investing.
You will gain the necessary experience of investing before even graduating and a small investment nest egg that can have an enormous future time value.
Again, you will become a more mature investor quicker as you have had more experience investing than most other investors. This experience will provide valuable lessons in investing that no amount of research and study could have provided.
Even the very fact that you have started investing is a positive thing, as many people struggle to do even that. Also, if you can save and invest with a modest income now, think of the possibilities when you will be earning a decent full-time income?
Another important thing to consider is compounding interest, which is why most financial advisors recommend investing early. More time means less contribution is required to achieve your target amount.
For example, someone who’s 25 only needs to invest $240 a month at 9% annual returns to have $1 million by age 65, whereas if someone starts at age 30, they’ll need to make a monthly contribution of $370.
What Should you Invest in as a College Student?
As a college student, what you should invest in depends on your investment strategy. Whether you’re looking for large short-term profits, steady long-term gains, or a combination of the two, there is an investment option.
Here are a few of the most popular investments for a new investor:
Stocks
Stocks are essentially a small portion of a company you become a part-owner of if you buy. If the company makes a profit, your stock will increase in value.
Stocks are risky, too, as companies may go under, and you may lose your investment. Use stock screeners or tools from an online broker to find the best stocks to invest in for college students.
Bonds
Bonds are a lower-risk option compared to stocks. It is essentially a loan you give to the government or a company. It gains interest until it matures or when the investor decides to cash in.
Mutual Funds
Mutual Funds are funds managed by professionals. When you invest, your money joins a pool of investor money. The pool is then diversified into various stocks and bonds, and the risk associated with it depends on the sort of fund you’ve invested in.
Certificate of Deposit (CDs)
A Certificate of Deposit is a contract between a bank and a customer. The customer agrees to leave a certain amount deposited in the bank untouched for a specific time. This money accrues interest until it matures. CDs are considered to be low in risk.
Exchange-Traded Funds (EFTs)
Exchange-Traded Funds or EFTs are bought and sold similarly to stocks. They are essentially a bundle of various stocks or bonds that financial professionals manage, just like mutual funds. EFTs have the same risk mutual funds as well.
Index Fund
An Index Fund is a collection of the top stock in the market. The most among index funds in the S&P 500. In 2020, it provided returns of over 18% to its investors and averages around 10% annually.
Although index funds can lose money in a given year, it is highly unlikely. Index funds are for the most long-term-minded investors as it is designed to build wealth slowly over the years.
Real estate
Real estate is a good investment option if you have had a fortunate upbringing. You or your family could purchase a house and rent rooms to roommates to pay for the mortgage. If the local market improves the house’s value, you should be able to sell it and make a tidy profit.
How Should you Start Investing?
Many college students face a dilemma when they consider investing. With the multitude of options, there is available for them. It can be overwhelming to decide which one to invest in. Most financial advisors would advise young investors to go for more risky investments as there is a chance to make quick and large profits. However, it is prudent to choose a safer option.
Investing in a high-yield savings account can be a beneficial first step for young investors. These accounts offer deposit rates many times higher than traditional savings accounts. You also can make withdrawals when required.
However, if you’re looking to invest in stocks, a good first step is getting a free or low-cost investment platform for college students.
Webull and Robinhood are good free broker apps that you can use to trade anywhere. Fidelity Investments and Charles Schwab are low-cost brokerages that provide research and educational tools that can help you in your investment journey.
Investing a little every month is a good strategy to build wealth with minimal pressure on your purse. Putting away $40-$50 a month is enough to see good returns.
Even a small investment can motivate you to follow the market and give you an investor’s mindset. Investments will also encourage you to research and analyze your holding and other stocks, teaching you better ways to invest the money as a college student.
If you have trouble picking stocks, subscribing to a robo-advisor can be good. A Robo-advisor is an algorithm that will take in your preferences such as timeline, risk tolerance, and the aggression of investments and build a portfolio based on that.
You can start for as little as $20 and periodically add money without extra costs. But they will charge an annual fee of 0.25% of your total assets.
Investment Tips for Students
Many investors had regretted not making certain decisions when they were younger that could have helped them have a better portfolio. They wish they could go back in time and tell themselves what to do. Instead, they have a few good tips to give to new investors.
It’s smart to start saving right away, as even $10 a week can be enough to fund your investments. Skipping expensive meals and coffee for a few extra bucks can turn into big savings later.
Investing in simple stocks is also a good way to learn the trade. Stocks with low volatility can provide young investors with valuable trading experience while not affecting their bottom line too much. You also use many trading simulators to acquaint yourself with how the market works.
Experienced investors will also advise you not to be too clever. Instead, focusing on the fundamentals of high savings rates and diverse index funds can get you a long way. They also advise against buying stocks on margin as this is something to be done after you’ve gained a bit of experience.
Investors would also advise looking into IRAs or Roth IRA, retirement plans. Although it may seem a little too early, they would say it’s never too early.
Finally, veteran investors advise perseverance. You should never stop investing once you’ve begun. Many people are turned off from investing in the first few months after facing adversity.
The market will not always go your way, but in the long term, the market is on the up, and if you stay long enough, you will benefit.
Conclusion
Whether you’re looking for a head start in your investing future or if you’re looking for a way to pay off student debt after you’ve graduated, investing while still in college is a great idea. Time is of the essence as the power of compounding interest will make your small but steady investment turn into a fortune.
The most important thing to do is get started and start looking for the best investments for college students, and once you’ve begun, do not stop. You’ll be thanking your past self in the future.
FAQ
Where Should I Invest My Money as a Student?
Stocks, bonds, EFTs, CDs, Mutual Funds, and Index Funds are some of the best investments for a student.
What is the Best Type of Investment for Students?
Stocks are the best type of investment for students as they have a higher risk tolerance, and they require high-profit margins to make up for their low capital investments.
What Should I Invest $1000 In?
High-yield savings accounts, Robo-advisor, real estate, and CDs are all viable investments. The stock is the best place to invest if you have the know-how.
What Should I Invest in Right Out of College?
Investing in Index funds such as S&P 500 is a good and safe first investment for young investors.
How Can a College Student Build Wealth?
Making smart investments early on and avoiding debt are the two best ways for college students to build wealth.
What Should a 19-Year-Old Invest In?
Stocks, mutual funds, and EFTs are best suited for the young as higher returns are required to create a better portfolio early on.
